SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
[X] For the Quarterly Period Ended: September 30, 1999
or
[ ] Transition Report Pursuant to Section 13 or 15 (D) of The
Securities Exchange Act of 1934
For the Transition Period From _________ To ________
Commission File Number: 333-5753
Exigent International, Inc.
(Exact name of Registrant as specified in its charter)
Delaware 59-3379927
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
1225 Evans Road
Melbourne, Florida 32904-2314
(Address of principal executive offices) (Zip code)
407-952-7550
(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ____
The number of shares outstanding of the registrant's common stock, $.01
par value, on October 15, 1999 was 4,821,388.
<PAGE>
2
<TABLE>
<CAPTION>
EXIGENT INTERNATIONAL, INC.
QUARTER ENDED SEPTEMBER 30, 1999
INDEX
PART I - FINANCIAL INFORMATION
<S> <C> <C>
Item 1. Financial Statements. Page
Consolidated Balance Sheets as of September 30, 1999 and December 31, 1998 3
Consolidated Statements of Income for the Nine Months Ended September 30, 1999 and October 5
31, 1998
Consolidated Statements of Income for the Three Months Ended September 30, 1999 and 6
October 31, 1998
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 1999 and 7
October 31, 1998
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. 11
Item 3. Quantitative and Qualitative Disclosure of Market Risk 18
PART II - OTHER INFORMATION
Item 5. Other Information. 19
Item 6. Exhibits and Reports on Form 8-K. 19
Signatures 20
</TABLE>
<PAGE>
3
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
EXIGENT INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, 1999 December 31,
(unaudited) 1998
----------------------- -------------------
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 673,198 $ 429,970
Accounts receivable, pledged 1,971,540 1,873,772
Costs and estimated earnings in excess of
billings on uncompleted contracts, pledged 5,584,254 5,072,788
Prepaid expenses 17,462 10,677
Deferred income taxes 595,000 595,000
Income taxes receivable 843,938 843,938
----------------------- -------------------
TOTAL CURRENT ASSETS 9,685,392 8,826,145
----------------------- -------------------
PROPERTY AND EQUIPMENT
Cost 6,254,586 6,265,709
Accumulated depreciation (4,593,470) (3,982,347)
----------------------- -------------------
NET PROPERTY AND EQUIPMENT 1,661,116 2,283,362
----------------------- -------------------
OTHER ASSETS
Software development costs, net of accumulated amortization 4,836,691 4,463,729
Deposits 79,412 74,179
Cash surrender value of life insurance 17,028 17,028
----------------------- -------------------
TOTAL OTHER ASSETS 4,933,131 4,554,936
----------------------- -------------------
TOTAL ASSETS $ 16,279,639 $ 15,664,443
======================= ===================
See accompanying notes.
</TABLE>
<PAGE>
4
<TABLE>
<CAPTION>
EXIGENT INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, 1999 December 31,
(unaudited) 1998
----------------------- -------------------
CURRENT LIABILITIES
<S> <C> <C>
Line of credit $ 811,734 $ 1,811,093
Accounts payable 251,796 227,750
Accrued expenses 2,874,362 2,734,200
Billings in excess of costs and estimated earnings
on uncompleted contracts 789,424 270,418
Income taxes payable 225,658 5,098
Current portion, long-term debt 245,786 204,456
----------------------- -------------------
TOTAL CURRENT LIABILITIES 5,198,760 5,253,015
----------------------- -------------------
LONG-TERM LIABILITIES
Long-term debt, less current portion 331,627 427,816
Deferred income taxes 1,355,000 1,355,000
Other liabilities - 44
----------------------- -------------------
TOTAL LONG-TERM LIABILITIES
1,686,627 1,782,860
----------------------- -------------------
TOTAL LIABILITIES 6,885,387 7,035,875
----------------------- -------------------
STOCKHOLDERS' EQUITY
Class A Preferred Shares, $.01 par value 5,000,000 shares authorized,
68,841 and 609,882 issued and outstanding at September 30, 1999 and
December 31, 1998, at $2.50 per share liquidation/dissolution preference 688 6,099
Common Shares, $.01 par value, 40,000,000 shares authorized, 4,817,788 and
4,130,103 issued and outstanding at September 30, 1999 and December 31,
1998, respectively 48,179 41,301
Paid in capital 2,427,189 2,012,780
Retained earnings 6,918,196 6,568,388
----------------------- -------------------
TOTAL STOCKHOLDERS' EQUITY 9,394,252 8,628,568
----------------------- -------------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 16,279,639 $ 15,664,443
======================= ===================
See accompanying notes.
</TABLE>
<PAGE>
5
<TABLE>
<CAPTION>
EXIGENT INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
For the nine months ended
September 30, 1999 October 31, 1998
----------------------- -------------------
<S> <C> <C>
REVENUES $ 27,411,683 $ 25,858,155
COST OF SALES 20,188,462 19,209,905
----------------------- -------------------
GROSS PROFIT 7,223,221 6,648,250
GENERAL AND ADMINISTRATIVE EXPENSES 6,439,644 5,735,978
RESEARCH AND DEVELOPMENT COSTS 189,368 162,937
----------------------- -------------------
OPERATING INCOME 594,209 749,335
----------------------- -------------------
OTHER INCOME (EXPENSE)
Interest income 20,196 36,205
Interest expense (37,178) (133,047)
Loss on disposal of fixed assets (6,620) (1,213)
Other, net 12,407 13,625
----------------------- -------------------
TOTAL OTHER INCOME (EXPENSE) (11,195) (84,430)
----------------------- -------------------
INCOME BEFORE INCOME TAXES 583,014 664,905
INCOME TAX EXPENSE 233,206 265,859
----------------------- -------------------
NET INCOME $ 349,808 $ 399,046
======================= ===================
EARNINGS PER SHARE - BASIC $ 0.08 $ 0.10
======================= ===================
EARNINGS PER SHARE - DILUTED $ 0.06 $ 0.08
======================= ===================
See accompanying notes.
</TABLE>
<PAGE>
6
<TABLE>
<CAPTION>
EXIGENT INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
For the three months ended
September 30, 1999 October 31, 1998
----------------------- -------------------
<S> <C> <C>
REVENUES $ 9,121,721 $ 9,361,584
COST OF SALES 6,628,571 6,468,321
----------------------- -------------------
GROSS PROFIT 2,493,150 2,893,263
GENERAL AND ADMINISTRATIVE EXPENSES 2,078,412 2,614,730
RESEARCH AND DEVELOPMENT COSTS 164,430 106,301
----------------------- -------------------
OPERATING INCOME 250,308 172,232
----------------------- -------------------
OTHER INCOME (EXPENSE)
Interest income 8,386 13,109
Interest expense (12,106) (68,367)
Loss on disposal of fixed assets (3,815) (1,213)
Other net income (expense) 6,980 6,659
----------------------- -------------------
TOTAL OTHER INCOME (EXPENSE) (555) (49,812)
----------------------- -------------------
INCOME BEFORE INCOME TAXES 249,753 122,420
INCOME TAX EXPENSE 99,902 48,941
----------------------- -------------------
NET INCOME $ 149,851 $ 73,479
======================= ===================
EARNINGS PER SHARE - BASIC $ 0.03 $ 0.02
======================= ===================
EARNINGS PER SHARE - DILUTED $ 0.03 $ 0.01
======================= ===================
See accompanying notes.
</TABLE>
<PAGE>
7
<TABLE>
<CAPTION>
EXIGENT INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the nine months ended
September 30, 1999 October 31, 1998
----------------------- -------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 349,808 $ 399,046
----------------------- -------------------
Adjustments to reconcile net income to net cash provided (used) by operating
activities:
Depreciation and amortization 2,111,105 1,463,114
Accretion of unearned stock compensation 16,700
Loss on disposal of Fixed Assets 6,620 1,984
Changes in operating assets and liabilities:
Accounts receivable (97,768) (1,234,853)
Costs and estimated earnings in
excess of billings on uncompleted contracts (511,466) (1,218,605)
Prepaid expenses (6,785) 27,679
Inventory - 5,122
Prepaid income taxes - (7,066)
Deposits (5,233) (28,517)
Accounts payable 24,046 (88,423)
Accrued expenses 140,162 82,790
Billings in excess of costs and estimated earnings
on uncompleted contracts 519,006 (871,927)
Income taxes payable 220,560 (210,365)
Other liabilities (44) 44
----------------------- -------------------
Total adjustments 2,416,903 (2,079,023)
----------------------- -------------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 2,766,711 (1,679,977)
----------------------- -------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for acquisition of capital assets (46,091) (774,679)
Cash paid for capitalized software development (1,822,350) (3,408,719)
----------------------- -------------------
NET CASH USED BY INVESTING ACTIVITIES
(1,868,441) (4,183,398)
----------------------- -------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments (borrowings) under line of credit (999,359) 2,200,000
Principal payments on long-term debt (54,859) (270,081)
Proceeds from exercise of stock options and warrants 399,176 362,944
----------------------- -------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES (655,042) 2,292,863
----------------------- -------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIV. 243,228 (3,570,512)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 429,970 3,640,508
----------------------- -------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 673,198 $ 69,996
======================= ===================
See accompanying notes.
</TABLE>
<PAGE>
8
EXIGENT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1 - GENERAL
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information in response to the requirements of Article 10 of
Regulation S-X. Accordingly, they do not contain all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. The condensed consolidated financial statements for the
three and nine-month periods ended September 30, 1999 and October 31, 1998 are
unaudited and reflect all adjustments (consisting only of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
presentation of the financial position and operating results for the interim
periods. The condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto,
together with management's discussion and analysis of financial condition and
results of operations, contained in Exigent International, Inc.'s ("Exigent's"
or the "Company's") Annual Report on Form 10-K for the fiscal year ended
December 31, 1998. The results of operations for the three and nine months ended
September 30, 1999 are not necessarily indicative of the results that may be
expected for the entire fiscal year.
The Company maintains its records on a calendar year basis. The Company's first,
second and third quarters normally end on the Friday closest to the last day of
the last month of such quarter, which was October 1, 1999 for the third quarter
of fiscal 1999. However, for convenience the financial statements are dated as
of September 30, 1999.
Certain prior period amounts have been restated to correspond to the current
period presentation.
NOTE 2 - FISCAL YEAR CHANGE
The Company changed its fiscal year to correspond with a calendar year end,
effective December 31, 1998. Previously, the Company had a January 31 year-end.
The current fiscal quarter and nine-month period ended September 30, 1999 is
therefore compared to the three and nine months ended October 31, 1998.
NOTE 3 - LINE OF CREDIT
Software Technology, Inc. ("STI"), Exigent's primary subsidiary, had a
$5,000,000 and a $3,000,000 line of credit available from a bank as of September
30, 1999 and December 31, 1998, respectively. The line of credit note bears
interest on the unpaid principal balance at a rate per annum equal to the bank's
prime rate or LIBOR plus 2.5%. As of September 30, 1999 and December 31, 1998,
the outstanding draws against the line were $811,734 and $1,811,093,
respectively. The interest rate at September 30, 1999 and December 31, 1998 was
<PAGE>
9
7.88% and 7.56%, respectively. All accounts receivable, equipment, furniture and
fixtures of STI are pledged as collateral on the line of credit.
The weighted average interest rate on short-term borrowings during the
nine-month period ended September 30, 1999 was 7.77%.
NOTE 4 - EARNINGS PER SHARE
The following tables set forth the computation of basic and diluted earnings per
share for the nine and three months ended September 30, 1999 and October 31,
1998, respectively:
<TABLE>
For the nine months ended
September 30, 1999 October 31, 1998
------------------- ----------------
Numerator:
Net income (numerator for basic
<S> <C> <C>
and diluted earnings per share) $ 349,808 $ 399,046
============ ===========
Denominator:
Denominator for basic earnings per share-
weighted average common shares 4,378,687 4,016,736
Effect of dilutive securities:
Convertible preferred stock 437,333 636,472
Stock options and warrants 709,714 555,942
------------ -----------
Denominator for diluted earnings per share-
adjusted weighted average shares 5,525,734 5,209,150
------------ ------------
Basic earnings per share $ 0.08 $ 0.10*
============= ============
Diluted earnings per share $ 0.06 $ 0.08
============= ============
*Basic earnings per share for the nine months ended October 31, 1998 was
restated due to an error in computation.
</TABLE>
<PAGE>
10
<TABLE>
For the nine months ended
September 30, 1999 October 31, 1998
------------------- ----------------
Numerator:
Net income (numerator for basic
<S> <C> <C>
and diluted earnings per share) $ 149,851 $ 73,479
============ ===========
Denominator:
Denominator for basic earnings per share-
weighted average common shares 4,602,584 4,104,499
Effect of dilutive securities:
Convertible preferred stock 251,701 611,395
Stock options and warrants 583,810 633,692
------------ -----------
Denominator for diluted earnings per share-
adjusted weighted average shares 5,483,095 5,349,586
------------ ------------
Basic earnings per share $ 0.03 $ 0.02**
============= ============
Diluted earnings per share $ 0.03 $ 0.01
============= ============
** Basic earnings per share for the three months ended October 31, 1998 was
restated due to an error in computation.
</TABLE>
NOTE 5 - STOCKHOLDERS' EQUITY
The consolidated changes in stockholders' equity for the nine months ended
September 30, 1999 are as follows:
<TABLE>
Additional
Common Stock Class A Preferred Paid in Retained
Shares Amount Shares Amount Capital Earnings Total
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE JANUARY 1, 1999 4,130,103 $ 41,301 609,882 $ 6,099 $2,012,780 $6,568,388 $ 8,628,568
Exercise of convertible
securities 146,644 1,467 - - 397,709 - 399,176
Class A preferred converted to
common 541,041 5,411 (541,041) (5,411) - -
Accretion of unearned
compensation 16,700 16,700
Net Income 349,808 349,808
----------------------------------------------------------------------------------------
BALANCE JUNE 30, 1999 4,817,788 $ 48,179 68,841 $ 688 $2,427,189 $6,918,196 $ 9,394,252
========================================================================================
</TABLE>
Class A Preferred Stock converts 1:1 to Common Stock and has no preferential
treatment except for a liquidation preference.
<PAGE>
11
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following is management's discussion and analysis of (i) the consolidated
financial condition as of September 30, 1999 as compared with the fiscal year
ended December 31, 1998; (ii) the consolidated results of operations for the
nine months ended September 30, 1999 and October 31, 1998; and (iii) the
consolidated results of operations for the three months ended September 30, 1999
and October 31, 1998, of Exigent and its subsidiaries: Software Technology, Inc.
("STI"), FotoTag, Inc. ("FotoTag") and Middleware Solutions, Inc. ("M/Ware").
This discussion should be read together with Exigent's Form 10-K for the fiscal
year ended December 31, 1998.
General. In 1994, STI obtained its first significant commercial contract from
Motorola, Inc. to provide satellite ground station software for a constellation
of satellites that provides a direct link with portable handsets for worldwide
telephone service (the "Iridium" system). The Motorola multi-year contract
allowed STI to leverage its technology into the commercial arena. In 1996, STI
was awarded a contract to provide similar software for the Global Positioning
Satellite (GPS) System.
Although this fiscal year reflects a lull in the Company's commercial satellite
business, the Company continued to invest during these periods in the advanced
features for its OS/COMET(R) product and to a lesser extent the next generation
Windows(R) NT version of OS/COMET. As a result of this investment and
development, the Company received a contract award for DataLynx, a commercial
satellite project with Allied Signal Technical Services for software for the
control center and ground stations of the DataLynx Project and delivered Calypso
Pro(TM), a NT product, to a government customer in the first quarter of 1999. In
addition, the Company continues to invest in product development.
STI has invested in excess of $6,500,000 over the last three years in its
premier software product OS/COMET. This investment facilitated the contract
awards that management believes would have been otherwise unattainable.
Continued expenditures for development of new products is expected, and the
Company has recently been active in developing proposals for new commercial
products as well as satellite constellations.
STI's government business continues at a strong pace with orders coming in from
both existing and new customers. The backlog as of September 30, 1999 for
commercial and government contracts was $52,110,760, of which $45,896,840 is
unfunded. The award of DataLynx represents a significant new commercial contract
for the Company, representing software product sales in excess of $500,000 and a
role in this new commercial venture in anticipation of greater outsourcing by
the U.S. Government. The Company received a significant contract award from a
new proprietary customer. This multimillion-dollar contract will include both
development work as well as software products.
<PAGE>
12
Exigent has completed development of its commercial software product,
FotoTag(R), after investing in excess of $1,000,000 over the past three fiscal
years for this product development. Management continues the marketing and
promotion of this product with testing scheduled with the Federal Aviation
Administration and an international airline to commence during the fourth
quarter of fiscal year 1999. FotoTag is currently being marketed for airport
security and baggage and passenger reconciliation.
The Company's new subsidiary, M/Ware, was initially organized for the
development and distribution of middleware software, including Interplay(TM),
and certain other products. Interplay was released in beta version on July 27,
1999, with the final product released on October 1, 1999.
The Company believes that its investments in OS/COMET and its product family,
including Pluto(TM), Calypso(TM), Calypso Pro, the Integrated Control Center
(ICC)(TM) and OS/COMET Solo(TM), the Active Tracking Engine (ATE), FotoTag and
Interplay, as well as continuing product development have positioned the Company
for sales in the remainder of 1999 and beyond.
Liquidity. As of September 30, 1999, Exigent's ratio of current assets to
current liabilities increased to 1.9 from 1.7 at December 31, 1998. This
increase was due largely to a $1,000,000 payment on the Company's line of
credit. The sources and uses of cash are explained in detail below.
Exigent's cash portfolio (cash and cash equivalents) increased $243,228 during
the nine months ended September 30, 1999. The increase was due to cash provided
by operating activities of $2,766,711, cash used in investing activities of
$1,868,441 and cash used in financing activities of $655,042. The increase in
cash from operating activities from December 31, 1998 to September 30, 1999 was
primarily the result of the sale of Company products in both the commercial as
well as the government sector of the business and the noncash impact of the
depreciation and amortization of assets. During this time, the Company invested
approximately $450,000 in the ongoing support of the strategic agreement with
Motorola SATCOM projects. This investment is intended to help position Exigent
for sales to future commercial satellite projects. By comparison, Exigent's cash
portfolio decreased $3,570,512 during the nine months ended October 31, 1998.
The decrease was due to cash used by operating activities of $1,679,977, cash
used in investing activities of $4,183,398 and cash provided by financing
activities of $2,292,863.
In the nine months ended September 30, 1999, Exigent acquired $46,091 of capital
assets compared to $774,679 in the nine months ended October 31, 1998. Capital
needs are expected to continue as Exigent intends to remain current with
computing technologies. This need cannot be quantified at this time however, the
need will be funded primarily through operating leases set up with external
leasing companies. Currently, the Company has a lease line of credit through
Oliver-Allen Corporation with a funding limit of $800,000. The leases will
extend for a period of three years from each draw against the funding limit.
Through the nine-month period ended September 30, 1999, Exigent had drawn down
approximately $797,078 against this lease line of credit. An increase to the
lease line is currently being discussed to finance future needs.
<PAGE>
13
During the last three fiscal years the Company has made substantial investments
in the development of software products. The investments made for the nine
months ended September 30, 1999 although significant were greatly reduced from
the prior year as the Company rolled out several new products and completed its
investment in the strategic agreement with Motorola. In the nine months ended
September 30, 1999 and October 31, 1998, Exigent spent $1,822,350 and
$3,408,719, respectively, in capitalized software development costs. The
decrease in the first nine months of fiscal year 1999 resulted from the
completion and rollout of product additions for the OS/COMET product family
including Pluto, Calypso and the Integrated Control Center (ICC). The
development of its newest product, Interplay, was completed in October of 1999.
M/Ware was initially organized for the development and distribution of
middleware software and certain other products. M/Ware is still responsible for
Interplay as well as other products and information technology services.
Investment in capitalized software development is expected to continue through
the end of this calendar year at the current level.
As of September 30, 1999, Exigent had cumulatively borrowed $811,734 under the
line of credit to fund its operations. The Company reduced long-term debt by
$153,142 during the nine months ended September 30, 1999 to $153,513 at
September 30, 1999 while increasing its long-term lease obligation by $56,952
for a net decrease in long-term debt of $96,190. Management believes existing
cash, funds generated by operations, and the available line of credit will be
sufficient to fund Exigent's current operating requirements at least through the
fiscal year ending December 31, 1999 and into the new fiscal year. Additional
funds may be required to finance any acquisitions and major project start-ups.
The Company is currently in discussions with several institutions to obtain
financing for general corporate purposes, including acquisitions. There can be
no assurance that definitive arrangements relating to this funding will be
finalized or entered into on acceptable terms. Should such financing not be
available, the Company will prioritize its future activities accordingly.
Results of Operations for the nine months ended September 30, 1999 and October
31, 1998. Sales for the nine months ended September 30, 1999 were $27,411,683,
compared with $25,858,155 for the nine months ended October 31, 1998, an
increase of 6%, and the mix of government and commercial sales changed
significantly. The breakdown between government and commercial sales for each of
the nine-month periods is as follows:
September 30, 1999 October 31, 1998
------------------- -------------------
Government $ 23,689,661 86% $ 20,201,503 78%
Commercial 3,722,022 14% 5,656,652 22%
================ ======== ================= =======
$ 27,411,683 100% $ 25,858,155 100%
================ ======== ================= =======
This revenue mix could move back to a higher percentage of commercial sales if
the Company is awarded new commercial satellite projects. These projects have
been delayed because they often are in need of funding and support from both
vendors and investors.
Gross profit was up in line with the increase in revenue at $7,223,221 (26% of
sales) compared to $6,648,250 (26% of sales) for the nine months ended September
30, 1999 and October 31, 1998, respectively. This increase in gross profit was
the result of an increase in product sales in excess of $1,000,000 partially
offset by the increase in product amortization of $579,243 from $870,145 to
$1,449,388.
<PAGE>
14
General and administrative expenses for the nine months ended September 30, 1999
were $6,439,644, 12% or $703,666 greater than expenses of $5,735,978 for the
nine months ended October 31, 1998. This increase was due primarily to an
increase in marketing expenses of $350,000 resulting from the release of several
new products (OS/ICC, Calypso, Pluto and Interplay), attendance at more
tradeshows than the previous year, and the marketing expenditures associated
with the FotoTag product. In addition, there was an increase of approximately
$400,000 of labor and related indirect cost associated with the establishment
and staffing of a Chief Technical Office within the Company. These increases
were partially offset by a decrease in labor in several corporate G&A
organizations of approximately $50,000.
Research and development expenses for the nine months ended September 30, 1999
increased slightly from the first nine months of last year as the Company began
investing in new products. Research and development expenses are expected to
level off in the fourth quarter of 1999 as the Company moves from the research
phase into the development phase with these new products.
Net income decreased slightly to $349,808 (1.3% of sales) for the nine months
ended September 30, 1999 versus $399,046 (1.5% of sales) for the nine months
ended October 31, 1998. This decrease was due primarily to the increase in G&A
expenses.
Results of Operations for the three months ended September 30, 1999 and October
31, 1998. Sales for the three months ended September 30, 1999 were $9,121,721,
compared with $9,361,584 for the three months ended October 31, 1998, a decrease
of 3%, and the mix of government and commercial sales changed significantly. The
breakdown between government and commercial sales for each of the three-month
periods is as follows:
September 30, 1999 October 31, 1998
------------------- -------------------
Government $ 8,241,449 90% $ 7,785,481 83%
Commercial 880,271 10% 1,576,103 17%
================ ======== ================= ========
$ 9,121,720 100% $ 9,361,584 100%
================ ======== ================= ========
This revenue mix is expected to move back to a higher percentage of commercial
sales following the award and start-up of new commercial satellite projects.
Gross profit was down significantly at $2,493,150 (27% of sales) compared to
$2,893,263 (31% of sales) for the three months ended September 30, 1999 and
October 31, 1998, respectively. This decrease was due to the increase in the
amortization expense associated with product development of $192,983 during the
quarter ended September 30, 1999. In addition, the revenue posted for the
quarter ended October 31, 1998 included a year to date adjustment of $681,000
associated with the change in the presentation of revenue from estimated to
actual indirect expenses.
<PAGE>
15
General and administrative expenses for the three months ended September 30,
1999 were $2,078,412, 21% or $536,318 less than expenses of $2,614,730 for the
three months ended October 31, 1998. The decrease was due largely to the
adjustment from estimated G&A expenses to actual G&A. This change in the
presentation of expenses was done for the year to date expenses in the quarter
ended October 31, 1998.
Net income increased significantly to $149,851 (1.6% of sales) for the three
months ended September 30, 1999 compared to $73,479 (0.8% of sales) for the
three months ended October 31, 1998. This increase was due to the decrease in
the G&A expenses.
SUBSEQUENT EVENTS
On October 7, 1999 the Company announced a corporate reorganization into three
business units: STI, space and defense services; FotoTag, airport operations;
and a new information technology unit which will include a service element and
M/Ware as its product element. This new structure enhances Exigent's focus on
developing and supporting its leading products and technical services for these
three distinct marketplaces.
OUTLOOK
General and administrative expenses are expected to stabilize at current levels
as the current staffing has positioned the Company to grow and support an
increased volume of business and employees. In addition, the current level of
expenditures included the cyclical cost associated with the concentration of
four trade shows in February and March 1999 along with the outside professional
services supporting issues addressed at the annual shareholder's meeting.
Management believes that the employment benefits offered by Exigent remain above
the level of its competition and should help to retain existing employees and to
attract new employees. Overhead costs for benefits are expected to decrease as a
percentage of total labor for the fiscal year ending December 31, 1999 as
compared to the eleven months ended December 31, 1998 with the adjustments made
earlier in the year in the structure of the benefits offered. Management
believes that it is important to maintain the benefits at the current level, but
to do so and hold costs stable in the face of the increasing cost of health care
will be a management challenge.
The Company's current long-term business plan is to seek opportunities for
growth and diversification of its product and service offerings through internal
growth and acquisitions. To implement its long-term growth strategy, the Company
may need to raise capital through private or public debt and/or equity
financing(s). The Company's application to the Nasdaq Stock Market for listing
on the Nasdaq SmallCap Market was approved during the first quarter and trading
on the Nasdaq SmallCap Market in both the Company Common Stock and Warrants
began on March 1, 1999 under the symbols "XGNT" and "XGNTW", respectively. The
company's Warrants will expire on January 31, 2000. Assuming our Common Stock
continues to trade at a price which is higher than the exercise price for the
Warrants the Company anticipates cash raised from the purchase of the underlying
shares to accelerate in the last quarter of 1999 and the first quarter of 2000.
<PAGE>
16
FORWARD-LOOKING STATEMENTS; RISKS AND UNCERTAINTIES
Statements contained in this Form 10-Q that are not historical facts are
forward-looking statements made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. In addition, words such as
"believes," "anticipates," "expects" and similar expressions are intended to
identify forward-looking statements. Such forward-looking statements involve
known and unknown risks, uncertainties, and other factors which may cause the
actual results, performance or achievements of the Company or events, or timing
of events, relating to the Company to differ materially from any future results,
performance or achievements of the Company or events, or timing of events,
relating to the Company expressed or implied by such forward-looking statements.
The more prominent known risks and uncertainties inherent in the Company's
business are presented in condensed form below. However, not all possible risks
and uncertainties to which the Company is subject are referenced below, nor can
it be assumed that there are not other risks and uncertainties which may be more
significant to the Company. The reader is referred to the Company's Registration
Statement on Form S-3 filed with the Securities and Exchange Commission (SEC) on
June 14, 1999 and declared effective on June 25, 1999, for a more detailed
discussion of these risks and uncertainties.
Risks Related to the Company
o The failure of the market to accept our key products may result in reduced
revenue and capital available for future product development.
o The existence or sufficiency of customer funding for our contracts may
cause our quarterly results to fluctuate and adversely affect our stock
price.
o Since we rely heavily on US government entities for a substantial portion
of our revenues, our financial results may be materially adversely affected
by a decrease in US government expenditures for space-related programs.
o Since we rely on a small number of customers for a large portion of our
commercial revenue, the loss of one or more of these major customers could
have a material adverse effect on our financial results.
o Customers may discontinue purchases from us as a result of pressure from
other divisions within their organization which compete against us.
o Since our products are used in high cost production and operation of
satellites, the amount of damages for which we may be liable due to defects
in our products may be significant.
o The length of our sales cycle increases our costs and increases the risk
that we may not ultimately procure contracts.
o We may incur substantial legal expenses and diversion of our technical
and management personnel in protecting our proprietary rights against
infringement by others.
o We may incur substantial legal and indemnification expenses if we are
accused of infringing or misappropriating the proprietary rights of others.
<PAGE>
17
o Our revenues could decrease if we are unable to license technology and
software required to produce our products and deliver our services.
o Competition for and failure to hire qualified technical personnel may
result in higher costs and lower revenue.
o We may incur unexpected costs in connection with correcting Year 2000
problems.
o Our anti-takeover provisions may discourage a third party from acquiring
our shares at a favorable price.
o If we fail to estimate accurately our actual costs for fixed price
contracts, we may incur losses on these contracts.
o If we are unable to obtain additional financial resources we may not be
able to implement our product development and growth plans.
o Default on loan agreements may accelerate loan repayments, causing a cash
shortfall.
o Anticipated acquisitions may be delayed or not achievable.
o Results from anticipated acquisitions may be less than expected and
integration of acquisitions may prove more difficult and/or expensive than
anticipated.
Risks Related to the Industry
o Because most of our customers are engaged in the space industry, our
financial results and stock price could be materially adversely affected if
this industry does not continue to grow.
o We operate in an industry with rapidly-changing technology. If we fail to
adapt to technological changes within the industry our products may become
obsolete or unmarketable, which could have a material adverse effect on our
financial results.
o Intense competition for limited number of customers may cause us to lose
projects or result in decreased revenues.
o Our customers in the satellite and telecommunications industry are
subject to significant US and foreign government regulation including,
without limitation, export controls. Changes in these regulations may make
our products or services unsuitable for a customer's needs or otherwise
decrease demand for our products of services.
Year 2000 Issues
Some existing computer programs will be unable to recognize dates properly in
the Year 2000 ("Y2K") and beyond. During 1997, Exigent conducted an informal
study of its products, systems and operations, including products under
development, to improve their business functionality, to identify those of its
computer hardware, software and process control systems that do not properly
recognize dates after December 31, 1999, and those that are linked to third
parties' systems. Based on this informal study, Exigent recognized that the
OS/COMET product required certain modifications to be Y2K compliant. Those
modifications have been made to the software and are available in the current
release, Version 3.5. Exigent has also initiated communications with certain
third parties whose computer systems' functionality could adversely impact the
Company. These communications, which the Company completed during the third
quarter of 1999, will facilitate coordination of any necessary Y2K conversions
and will, additionally, permit Exigent to determine the extent to which the
Company may be vulnerable to the failure of third parties to address their own
Y2K issues. The Company completed its review of all desktop-computing resources
<PAGE>
18
during the third quarter of 1999. Due to the fact that the Company believes it
has secured sufficient resources to address the Y2K issue as it relates to its
own computer systems and certain third parties whose computer systems'
functionality could adversely impact the Company, the Company does not believe
that contingency planning is warranted at this time. The results of its review
of all desktop-computing resources may reveal the need for contingency planning
at a later date. The Company will evaluate the need for contingency planning
based on the progress and findings of its review.
The costs of Exigent's Y2K compliance efforts are being funded with cash flows
from operations. Some of these costs relate solely to the modification of
existing systems, while others are for new systems that will improve business
functionality. In total, these costs are not expected to be substantially
different from the normal, recurring costs that are incurred for systems
development and implementation, in part due to the reallocation of internal
resources and the deferral of other projects. As a result, these costs are not
expected to have a material adverse effect on Exigent's overall results of
operations or cash flows.
The assessment of the costs of Exigent's Y2K compliance effort, and the
timetable for the Company's planned completion of its own Y2K modifications, are
management's best estimates. These estimates were based upon numerous
assumptions regarding future events, including assumptions as to the continued
availability of certain resources, and, in particular, personnel with expertise
in this area, and as to the ability of such personnel to locate and either
re-program or replace, and test, all affected computer hardware, software and
process control systems in accordance with the Company's planned schedule. There
can be no guarantee that these estimates will prove accurate, and actual results
could differ from those estimated if these assumptions prove inaccurate.
Based upon progress to date, however, Exigent believes that it is unlikely that
the foregoing factors will cause actual results to differ significantly from
those estimated. As to the systems of the third parties that are linked to
Exigent's, there can be no guarantee that such systems that are not now
Y2K-compliant will be timely converted to compliance. Additionally, there can be
no guarantee that third parties of business importance to Exigent will
successfully and timely reprogram or replace, and test, all of their own
computer hardware, software and process control systems.
Item 3. Quantitative and Qualitative Disclosure of Market Risk
Not applicable.
<PAGE>
19
PART II - OTHER INFORMATION
Item 5. Other Information
1. Exigent Warrants currently trading on the Chicago Stock Exchange as
XNTWS and on the Nasdaq SmallCap as XGNTW will expire on January 30,
2000.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Number Exhibit
- ------ -------
10 Loan Agreement dated August 12, 1999 between Software Technology, Inc.,
Exigent International, Inc., FotoTag, Inc. and The Huntington National
Bank
27 Financial Data Schedule
(b) Reports on Form 8-K:
None
<PAGE>
20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Exigent International, Inc.
November 5, 1999 By: /s/ B.R. Smedley
- ---------------- --------------------------------------------------------
Date B.R. "Bernie" Smedley, Chief Executive Officer
November 5, 1999 By: /s/ Jeffery B. Weinress
- ---------------- --------------------------------------------------------
Date Jeffery B. Weinress, Chief Financial Officer
November 5, 1999 By: /s/ Sally H. Ball
- ---------------- --------------------------------------------------------
Date Sally H. Ball, Principal Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 673
<SECURITIES> 0
<RECEIVABLES> 7,556
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9,685
<PP&E> 6,255
<DEPRECIATION> 4,593
<TOTAL-ASSETS> 16,280
<CURRENT-LIABILITIES> 5,199
<BONDS> 577
0
1
<COMMON> 48
<OTHER-SE> 9,345
<TOTAL-LIABILITY-AND-EQUITY> 16,280
<SALES> 0
<TOTAL-REVENUES> 27,412
<CGS> 0
<TOTAL-COSTS> 20,188
<OTHER-EXPENSES> 6,629
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 37
<INCOME-PRETAX> 583
<INCOME-TAX> 233
<INCOME-CONTINUING> 350
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 350
<EPS-BASIC> 0.08
<EPS-DILUTED> 0.06
</TABLE>
Exhibit 10
LOAN AGREEMENT
THIS AGREEMENT made and entered into as of this 12th day of
August, 1999, by and between SOFTWARE TECHNOLOGY, INC., a Florida corporation,
whose address is 1225 Evans Road, Melbourne, Florida 32904 (the "Borrower"),
EXIGENT INTERNATIONAL, INC., a Delaware corporation, and FOTOTAG, INC., a
Delaware corporation, (the "Guarantors"), and THE HUNTINGTON NATIONAL BANK,
whose address is 685 S. Babcock Street, Melbourne, Florida 32901 (the "Lender").
W I T N E S S E T H:
WHEREAS, Borrower has negotiated with Lender for a revolving
line of credit loan in the principal amount of TWO MILLION DOLLARS
($2,000,000.00) (the "Loan" or "Revolving Loan") to be used by Borrower to
refinance and obtain additional credit to be secured by collateral as described
in Exhibit "A", attached hereto and made a part hereof by reference. The Loan
will be guaranteed by the Guarantors.
WHEREAS, Borrower, Guarantors and Lender wish to enter into
this Agreement in order to set forth the terms and conditions of the
disbursement of said Loan.
NOW, THEREFORE, in consideration of the premises set forth
above and the sum of TEN DOLLARS ($10.00) each to the other in hand paid, the
receipt and sufficiency of which is hereby acknowledged, Borrower, Guarantors
and Lender do hereby agree as follows:
ARTICLE I
LOAN DOCUMENTS
Prior to any disbursements, Borrower shall execute and
deliver, or cause to be executed and delivered, to Lender the following
documents (hereinafter collectively and together with this Agreement referred to
as "Loan Documents"), all in a form satisfactory to Lender:
A. Note. Promissory Note for Line of Credit of even date
herewith payable to the order of the Lender executed by Borrower, in the
principal amount of TWO MILLION AND 00/100 DOLLARS ($2,000,000.00) (referred to
as "Note").
B. Uniform Commercial Code-Financing Statements (Local and
State). Uniform Commercial Code-Financing Statements (local and state) covering
all of Borrower's assets including, but not limited to: accounts, inventory,
deposit accounts, general intangibles, contract rights, leasehold improvements,
machinery, equipment, intellectual property, instruments, documents, chattel
paper, trade names, trademarks and patents.
C. Guaranties. The unqualified and unconditional guaranty of
EXIGENT INTERNATIONAL, INC., a Delaware corporation, and FOTOTAG, INC., a
Delaware corporation.
<PAGE>
D. Security Agreement. As security for payment of the
indebtedness evidenced by the Note, the Borrower shall execute and deliver to
the Lender a Security Agreement of even date herewith (the "Security Agreement")
pursuant to which the Borrower shall grant the Lender a second security interest
in all of the assets of the Borrower described in the Security Agreement.
Borrower agrees that all of the Liabilities of Borrower arising under the Loan
Agreement shall be secured by the Collateral. Borrower further agrees that the
Lender shall have sole discretion as to the manner of application of the sale or
the disposition of the Collateral and shall be entitled to conduct one or more
sales of the Collateral in addition to all other rights and remedies contained
herein. As additional security for payment of the indebtedness evidenced by this
Loan, the Guarantors shall execute an unconditional guarantee in favor of the
Lender described in Paragraph C. above.
E. Other Documents. Such other documents as may be required by
Lender in accordance with the terms of the Loan Commitment dated August 6, 1999
executed by Lender and Borrower in connection with the Loan ("Loan Commitment").
ARTICLE II
REPRESENTATIONS AND WARRANTIES
In order to induce the Lender to make the Loan, the Borrower
and Guarantors make the following representations and warranties:
A. Borrower is a corporation duly organized, existing and in
good standing under the laws of the State of Florida, and has the corporate
power to own property and to carry out its businesses now being conducted, and
is duly qualified as a foreign corporation to do business in every jurisdiction
in the United States of America in which the nature of its business makes such
qualification necessary and is in good standing in such jurisdictions.
Guarantors are corporations duly organized, existing and in good standing under
the laws of the State of Delaware. Borrower and Fototag,Inc. are wholly-owned
subsidiaries of Exigent International, Inc.
B. Borrower is duly authorized under all applicable provisions
of law to execute and deliver the Note and to execute, deliver and perform the
Loan Agreement and the Security Agreement, all corporate action on its part
required for the lawful execution, delivery and performance thereof has been
duly taken and the Loan Agreement, the Security Agreement and the Note, upon the
due execution and delivery thereof, will be the valid and enforceable
instruments and obligations of Borrower in accordance with their terms. Neither
the execution of the Loan Agreement, the Security Agreement not the creation or
issuance of the Note, nor the fulfillment of or compliance with their provisions
and terms will conflict with, or result in a breach of the terms, conditions or
provisions of, or constitute a violation of or default under any applicable law,
regulation, order, writ or decree of the charter or bylaws of the Borrower or
any agreement or instrument to which Borrower is now a party or create any lien,
charge or encumbrance upon any of the property or assets of Borrower pursuant to
the terms of any agreement or instrument to which Borrower is a party or by
which it is bound other than the security interest contemplated hereby.
C. No written approval of any federal, state or local
governmental authority is necessary to carry out the terms of the Loan
Agreement, the Security Agreement or the Note and no consents or approvals are
required in the making or performance of the Loan Agreement, the Security
Agreement or the Note.
D. The audited consolidated balance sheet of the Borrower and
Guarantors, as of December 31, 1998, is true and correct and the consolidated
balance sheet of Borrower and Guarantors, dated as of July 2, 1999, and related
statement of income for the quarter then ended, a copy of which has been
provided to the Lender, is true and correct, subject to normal, year end
adjustments and fairly presents the financial condition of the Borrower and
Guarantors, all in accordance with Generally Accepted Accounting Principles
consistently applied and since July 2, 1999, no material adverse change in
Borrower's and Guarantors' financial condition or business operation has
occurred.
<PAGE>
E. Except as previously disclosed to Lender in writing, there
are no pending or threatened actions or proceedings before any court, arbitrator
or governmental or administrative body or agency which may materially adversely
affect the properties, business or condition, financial or otherwise, of
Borrower or Guarantors or in any way adversely affect or call into question the
power and the authority of Borrower to enter into or perform the Loan Agreement,
the Note or the Security Agreement.
F. No part of the proceeds of advances made pursuant to the
Loan Agreement will be or have been used to purchase or carry, or to reduce or
retire any loan incurred to purchase or carry, any margin stocks (within the
meaning of Regulation U of the Board of Governors of the Federal Reserve System)
or to extend credit to others for the purpose of purchasing or carrying any such
margin stocks. Borrower is not engaged in the business of extending credit for
the purpose of purchasing or carrying such margin stocks. If requested by the
Lender, Borrower shall furnish to the Lender, in connection with the loan made
hereunder, a statement in conformance with the requirements of Federal Reserve
Form U-l referred to in said Regulation. In addition, no part of the proceeds of
the loan made hereunder will be used for the purchase of commodity future
contracts (or margins therefor for short sales) for any commodity not required
for the normal raw material inventory of the Borrower.
G. Borrower is now solvent and able to pay its debts as they
mature and Borrower now owns property whose fair salable value is greater than
the amount required to pay its Indebtedness.
H. Borrower has not incurred any material or accumulated
funding deficiency within the meaning of the Employee Retirement Income Security
Act of 1974 or any liability to the Pension Benefit Guarantee Corporation
established under such Act (or any successor thereto under such Act) in
connection with any employee benefit plan established or maintained by the
Borrower.
I. Each of the representations and warranties of the Borrower
contained in the Security Agreement are hereby reaffirmed in all respects as of
the date hereof.
J. Neither this Loan Agreement nor any other Agreements
contains any misrepresentation or untrue statement of fact or omits to state any
material fact necessary to make any of such agreements, reports, schedules,
certificates or instruments not misleading.
K. Borrower has good, indefeasible and merchantable title to
the Collateral, free and clear of all liens, claims, security interests and
encumbrances.
L. Borrower has good and marketable title to its properties
and assets, including the properties and assets reflected in the balance sheet
described above, except for such assets as have been disposed of since the date
of said financial statements as no longer used or useful in the conduct of its
business or as have been disposed of in the ordinary course of business, and all
such properties and assets are free and clear of all liens, mortgages, pledges,
encumbrances or charges.
M. Borrower is not a party to nor is it bound by any contract
or agreement or subject to any charter or other corporate restrictions which
adversely affects the business, properties or condition, financial or otherwise,
of Borrower except as disclosed in the financial statements referenced above and
note thereto.
N. Borrower owns, possesses or has the right to use all
necessary patents, licenses, trademarks, trademark rights, trade names, trade
name rights and copyrights material to the conduct of its businesses now
conducted, without known conflict with any patent, license, trademark, trade
name or copyright of any other Person.
<PAGE>
The effectiveness of this Loan Agreement shall be subject to
the continuing accuracy of all representations and warranties of the Borrower
and Guarantors contained herein. Each advance made to Borrower pursuant to the
Loan Agreement shall constitute an automatic warranty and representation by
Borrower and Guarantors to the Lender that there does not exist a Default or any
Event of Default or any event or condition which, with notice, lapse of time
and/or the making of such advance, would constitute a Default or any Event of
Default and a reaffirmation as of the date of said request of all the
representations and warranties of Borrower and Guarantors contained in the Loan
Agreement. Borrower and Guarantors covenant, warrant and represent to the Lender
that all representations and warranties of Borrower and Guarantors contained in
this Loan Agreement shall be true at the time of execution of the Loan Agreement
and the Other Agreements and shall survive the execution, delivery and
acceptance thereof by the parties thereto and the closing of the transactions
described therein or related thereto.
ARTICLE III
CONDITIONS OF CLOSING
The effectiveness of the Loan Agreement shall be subject to
the fulfillment of the following conditions precedent to the first advance under
the Loan:
A. Borrower shall have delivered to the Lender the fully
executed Security Agreement, Note, financing statements and other letters,
instruments and documents as Lender shall require, including, but not limited
to, a Certificate of good standing of the Borrower certified by the Secretary of
State or other appropriate governmental authority accompanied by a certificate
from the appropriate officer of Borrower certifying that the copy attached to
such certificate of the Articles of Incorporation is complete and that the
Articles of Incorporation have not been amended, annulled, rescinded or revoked
since the date they were certified by the Secretary of State or other
appropriate governmental authority, a copy of the bylaws of the Borrower in
effect on the date of the Loan Agreement accompanied by a certificate from an
appropriate officer of Borrower that the copy is true and complete and that the
Bylaws have not been amended, annulled, rescinded or revoked since the date of
the Bylaws or the last amendment reflected in the copy, if any, and a
certificate of the Secretary certifying the names and true signatures of the
Borrower authorized to sign the Loan Agreement, the Security Agreement, the Note
and any Other Agreements to be executed and delivered hereunder.
B. The Borrower shall provide the Lender with a list of all
Indebtedness at the time of closing.
C. All instruments and documents incident to the issuance and
delivery of the Note shall be reasonably satisfactory in form and substance to
the Lender and Lender's counsel and the Lender shall have received the executed
Loan Agreement, the Security Agreement and all other documents which it may
reasonably request in connection therewith and copies of resolutions of Borrower
authorizing the transactions contemplated by the Loan Agreement, such
resolutions and other documents, when appropriate, to be certified by
appropriate corporate or governmental authorities.
D. The Lender shall have received the Guaranty Agreements
executed by the Guarantors.
The effectiveness of the Loan Agreement shall be further
subject to the fulfillment of the following conditions precedent to any
subsequent advance to Borrower under this Loan:
1. The Lender shall have received at the time of any
subsequent advance such other approvals, opinions or documents as the Lender may
reasonably request.
2. No event has occurred or is continuing or would result from
such advance that would constitute a Default or Event of Default as set forth
below.
3. The continuing accuracy of all representations and
warranties of the Borrower contained herein.
<PAGE>
ARTICLE IV
AFFIRMATIVE COVENANTS
The Borrower further agrees that, so long as any Liabilities
remain unpaid to Lender, it will comply with the following requirements:
A. As soon as practicable, in any event within forty-five (45)
days after the end of each calendar quarter of each calendar year, deliver or
cause to be delivered to the Lender a consolidated balance sheet of Borrower and
Guarantors as at the last day of such quarter and related consolidated statement
of income for such quarter and cumulative year to date for Borrower and
Guarantors, setting forth in each case comparative form figures for the
corresponding period in the preceding calendar Year, all in reasonable detail
certified by an authorized officer of Borrower to have been prepared in
accordance with Generally Accepted Accounting Principles applied on a consistent
basis, subject to changes resulting from normal year-end adjustments.
B. As soon as practicable and in any event within ninety (90)
days after the end of each Fiscal Year, deliver to the Lender (i) a consolidated
balance sheet of Borrower and Guarantors as at the end of such Fiscal Year, and
related consolidated statements of income and retained earnings and changes in
financial position for such Fiscal Year, setting forth in each case comparative
form figures for the corresponding period in the preceding Fiscal Year, all in
reasonable detail and satisfactory in scope to the Lender and certified by and
containing an unqualified opinion of a nationally recognized firm of independent
certified public accountants, and (ii) management letters, if any, delivered to
the Borrower by such independent certified public accountants, in connection
with their examination of such financial statements.
C. Together with each delivery of those items required by
Paragraphs A. and B., above, Borrower shall deliver to the Lender an officer's
certificate setting forth: (i) to the best of his knowledge, Borrower has kept,
observed, performed and fulfilled each and every agreement binding on and
contained in this Loan Agreement and is not at the time in default of the
keeping, observance, performance or fulfillment of any of the terms, provisions
and conditions hereof, and (ii) that no Default or Event of Default, as has been
specified below, has occurred or specifying all such Defaults or Events of
Default which they may have knowledge.
D. With reasonable promptness, deliver such additional
financial or other date as the Lender may reasonably request. The Lender is
hereby authorized to deliver a copy of any financial statements or any other
information relating to the business operations or financial condition of the
Borrower and Guarantors which may be furnished to it or come to its attention
pursuant to this Loan Agreement or otherwise, to any regulatory body or agency
having jurisdiction over the Lender or to any Person which shall, or shall have
the right or obligation, to succeed to all or any part of the Lender's interest
in the Note or Other Agreements.
E. Promptly pay or cause to be paid all taxes, assessments and
other governmental charges that may lawfully be levied or assessed upon the
income or profits of Borrower; provided, however, Borrower shall not be required
to pay any such tax, assessment, charge, levy or claim so long as the validity
thereof shall be actively contested in good faith by proper proceedings; but
provided further that any such tax, assessment, charge, levy or claim shall be
paid, stayed or bonded forthwith upon the commencement of proceedings to
foreclose any lien securing the same.
F. Do or cause to be done all things necessary to preserve
and to keep in full force and effect its corporate existence and rights.
<PAGE>
G. At its sole cost and expense, keep and maintain the
Collateral insured for its full insurable value against loss or damage, fire,
theft, explosion and all other hazards and risk ordinarily insured against by
other owners or users of such properties in similar businesses, and maintain
adequate workers' compensation insurance, and notify the Lender promptly of any
event or occurrence causing a material loss or decline in the value of the
Collateral and the estimated (or actual, if available) amount of such loss or
decline. All policies of insurance shall be in form and with insurers recognized
as adequate by prudent business persons and all such policies shall be in such
amounts as may be satisfactory to the Lender. Upon request, Borrower shall
deliver to the Lender the original (or certified copy) of each policy of
insurance and evidence of payment of all premiums therefor. Such policies of
insurance shall contain an endorsement, in form and substance acceptable to the
Lender, showing loss payable to the Lender. Such endorsement, or an independent
instrument furnished to the Lender, shall provide that the insurance companies
will give the Lender at least thirty (30) days prior written notice before any
such policy or policies of insurance shall be altered or canceled and that no
act or default of Borrower or any other person shall affect the right of the
Borrower to loss or damage. Borrower hereby directs all insurers under such
policies of insurance where loss or damage exceeds $25,000 under any such policy
of insurance to pay all proceeds payable hereunder directly to the Lender. So
long as no Default or Event of Default exists hereunder, at the option of the
Borrower, in the case of insurance proceeds arising from the loss or damage of
building and equipment, the proceeds may be used to replace or restore same.
Should the Borrower elect not to replace or restore the lost property, any
insurance proceeds shall be applied first to any accrued interest due to the
Lender, then to the principal balance of the liabilities in such order as the
Borrower may direct. Borrower irrevocably makes, constitutes and appoints the
Lender (and all officers, employees or agents designated by the Lender) as such
Borrower's true and lawful attorney (and agent-in-fact), effective from and
after the occurrence of a Default or Event of Default, for the purpose of
making, settling and adjusting such claim under the policies of insurance
(providing that the Lender shall consult with Borrower prior to finally making,
settling or adjusting claims under such policies of insurance), endorsing the
name of Borrower on any check, draft or instrument or other item or payment for
the proceeds of such policies of insurance and for making all determinations and
decisions with respect to such policies of insurance. In the event Borrower, at
any time or times hereafter, shall fail to maintain any of the policies of
insurance required above or to pay any premium in whole or in part related
thereto, then the Lender, without waiving or releasing any obligation or default
by Borrower hereunder, may (but shall be under no obligation to do so) at any
time or times hereafter obtain and take any other action with respect thereto
which the Bank deems advisable. All sums so disbursed by the Lender, including
reasonably attorneys' fees, court costs, expenses and other charges relating
thereto, shall be payable, on demand by Borrower and shall be additional
Liabilities hereunder secured by the Collateral. The Lender agrees to give
Borrower notice of payment of each and every premium paid by Borrower to
insurers as required hereunder.
H. Maintain its property in good order and repair and from
time to time make all needful and proper repairs, renewals, replacements,
additions and improvements thereto.
I. Keep true books of record and account in which full, true
and correct entries will be made of all of its dealings and transactions and set
up on its books such reserves as may be required by Generally Accepted
Accounting Principles.
J. Conform to and duly observe all laws, regulations and other
valid requirements of any regulatory authority with respect to the conduct of
its business.
<PAGE>
K. Upon any officer of the Borrower obtaining knowledge of a
Default or Event of Default hereunder or under any other obligation of Borrower,
cause such officer or individual, as the case may be, to properly deliver to the
Lender a certificate certifying the nature thereof, the period of existence
thereof, and whatever action the Borrower proposes to take with respect thereto.
L. Upon any officer of the Borrower obtaining knowledge of a
material litigation, dispute or proceedings being instituted or threatened
against Borrower, or any attachment, levy, execution or other process being
instituted against any assets of Borrower, cause such officer or individual, as
the case may be, to promptly give the Bank written notice of such litigation,
dispute, proceeding, levy, execution or other process.
M. Use it best efforts to comply with all of the requirements
of the Employee Retirement Income Security Act of 1974 (ERISA) applicable to it
and furnished to the Lender a statement of the principal financial officer of
Borrower describing in reasonable detail any Reportable Event (as defined in
ERISA).
N. Continue at all times to maintain its chief executive
offices and principal place of business at Melbourne, Brevard County, Florida.
O. Maintain its primary operating banking accounts with the
Lender.
P. With respect to the consolidated financial statements of
Borrower and the Guarantors, maintain the following financial ratios in the
amounts indicated below:
1. Maximum Total Liabilities divided by Tangible Net
Worth of 2.25:l.0 at fiscal year end December 3l, l999
and quarterly thereafter.
2. Minimum Working Capital of $2,000,000.00 at
September 30, 1999 and each quarter thereafter.
3. Minimum Current Ratio of l.30:l.0 at September 30,
1999 and each quarter thereafter.
4. Minimum Debt Service Coverage l.20 times at fiscal
year end December 31, 2000, and annually thereafter.
ARTICLE V
NEGATIVE COVENANTS
Except for any currently existing matter which has previously
been disclosed to Lender or unless Lender otherwise consents in writing,
Borrower covenants and further agrees that from the date hereof until payment in
full of the principal and interest under the Note, unless the Lender otherwise
consents in writing, it will not;
A. Incur, create, assume or permit to exist any Indebtedness
in excess of $100,000.00 other than the Indebtedness to the Lender.
B. Incur, create, assume or permit to exist any mortgage,
pledge, security interest, encumbrance, lien or other charge of any kind upon
any of its properties or assets of any character under conditional sales or
other title retention agreements in excess of $100,000.00 except those
mortgages, liens and security interests granted in favor of the Lender.
C. Lend or advance money, credit or property in excess of
$50,000.00 to any employee, officer, director, stockholder, or affiliate except
in the ordinary course of the Borrower's business.
<PAGE>
D. Guarantee, assume, endorse or otherwise become or remain
liable in connection with the obligations (including the accounts payable) of
any other Person, in excess of $50,000.00, other than the endorsements of
negotiable instruments in the ordinary course of business for deposit or
collection.
E. Enter into any transaction that materially and adversely
affects the Collateral or Borrower's ability to repay the Liabilities or permit,
other than in the ordinary course of business, or agree to any extension,
compromise or settlement or make any change or modification of any kind or
nature with respect to any account including any terms relating thereto.
F. Merge or consolidate with any other corporation or sell,
lease, transfer or otherwise dispose of all or a substantial portion of its
assets, outside of the normal course of business.
ARTICLE VI
SPECIFIC PROVISIONS
A. Revolving Loan Amount. The maximum principal amount
outstanding under the Revolving Loan at any time shall not exceed the lesser of
the Borrowing Base (as defined in Exhibit 1 below) or Two Million Dollars
($2,000,000.00). On or before the first business day of each calendar month,
Borrower shall furnish to the Lender, in a form satisfactory to the Lender, a
current Borrowing Base Certificate with all calculations and documentation
necessary to determine the current Borrowing Base and the Borrowing Base set
forth therein shall be deemed the Borrowing Base until receipt and approval by
Lender of a new Borrowing Base Certificate.
B. Revolving Loan Rate. Except upon a Default, the interest
rate for the Revolving Loan may be adjusted from time to time as follows:
1. If Borrower's most recent Form 10Q report
furnished to Lender indicates the following ratios:
Total Liabilities to Total Net Worth less than 1.50:1.0 and Working Capital in
excess of $2,500,000.00, then the interest rate otherwise stated for the
Revolving Loan shall be reduced by 0.50% for the subsequent calendar quarter.
2. If Borrower's most recent Form 10Q report
furnished to Lender indicates the following ratios:
Total Liabilities to Total Net Worth less than 1.00:1.0 and Working Capital in
excess of $3,500,000.00, then the interest rate otherwise stated for the
Revolving Loan shall be reduced by 0.75% for the subsequent calendar quarter.
3. For any calendar quarter, Borrower may elect that
the applicable interest rate under the Revolving
Loan for such calendar quarter will be the Prime Rate or the Daily Fluctuating
LIBO Rate plus 2.50% (as such terms are defined in the Note) by providing
written notice of such election to Lender at least fifteen (l5) days prior to
the end of the preceding calendar quarter; otherwise, the applicable interest
rate for the preceding calendar quarter shall continue to be the applicable
interest rate for the subsequent calendar quarter.
ARTICLE VII
DEFAULT
If any one or more of the following events (hereinafter
referred to as "Events of Default") shall occur:
<PAGE>
A. If Borrower defaults in the payment of the Liabilities
when due and payable or declared due and payable; or
B. If Borrower defaults in the payment of principal or
interest on any other Liability, including any guarantee of indebtedness of
another Person, beyond any period of grace provided with respect thereto or in
the performance of any other agreement, term or condition contained in any
agreement under which any such Indebtedness is created, if the effect of such
default is to cause or permit the holder or holders of such Indebtedness (or a
trustee on behalf of such holder or holders) to cause such Indebtedness to
become due prior to its stated maturity; or
C. If Borrower defaults in the performance or observance of
any agreement or covenant contained herein or contained in any of the Other
Agreements; or
D. If any representation or warranty made by Borrower herein
or in any writing furnished in connection with or pursuant to this Loan
Agreement or any Other Agreements shall be false or misleading in any material
respect on the date as of which made; or
E. In the event of the liquidation or dissolution of Borrower,
or suspension of the business of Borrower or filing by Borrower of a voluntary
petition or an answer seeking reorganization, arrangement or readjustment of its
debts or for any other relief under the Bankruptcy Code, as amended or under any
other insolvency act or law, state or federal, now or hereafter existing, or any
other action of Borrower indicating its consent to, approval of, or acquiescence
in any such petition or proceeding the application by Borrower for, or the
appointment by consent or acquiescence of, a receiver, trustee or custodian of
Borrower, for all or substantial part of its property; the making by Borrower of
an assignment for the benefit of creditors; the inability of Borrower or the
admission by Borrower in writing of its ability to pay its debts as they mature;
or
F. In the event of the filing of an involuntary petition
against Borrower in bankruptcy seeking reorganization, arrangement, readjustment
of its debts or for any other relief under the Bankruptcy Code, as amended, or
under any other insolvency act or law, state or federal, now or hereafter
existing; or the involuntary appointment of a receiver, a trustee or a custodian
of Borrower for all or a substantial part of its property; the issuance of a
warrant of attachment, execution or a similar process against any substantial
part of the property of Borrower and the continuance of any such foregoing
events for sixty (60) days undismissed or undischarged; or
G. If any order is entered in any proceeding against Borrower
decreeing the dissolution or split up of Borrower and such order remains in
effect more than sixty (60) days; or
H. If any report, certificate, financial statement or other
instrument delivered to the Lender by or in behalf of Borrower is false or
misleading in any material respect at the time given; or
<PAGE>
I. If an uninsured final judgment, which with other
outstanding uninsured final judgments against Borrower exceeds an aggregate of
$100,000 shall be rendered against Borrower and within thirty (30) days after
entry thereof such judgment shall not have been discharged or executed thereof
stayed pending appeal, or if within thirty (30) days after the expiration of any
such stay such judgment shall not have been discharged; then, at any time
thereafter, the Lender may, at its option, declare the Note and all other
Liabilities owing by the Borrower to the Lender to be forthwith due and payable,
whereupon the Note and any other such Liabilities shall forthwith become due and
payable, without presentment, demand, protest or other notice of any kind, all
of which are expressly waived, anything contained herein or in the Other
Agreements to the contrary notwithstanding, and in addition the Lender may
immediately proceed to foreclose all or part of its liens on or security
interest in the Collateral in the proceeds of such foreclosure against the
Liabilities secured thereby in such manner as it shall elect and exercise its
rights under the Other Agreements and to do all other things provided for by law
or by this Agreement or by the Other Agreements.
ARTICLE VIII
GENERAL PROVISIONS
A. The Borrower further agrees to reimburse the Lender for all
costs and out-of-pocket expenses, including fees of the Lender's special
counsel, incurred in connection with the preparation, execution, delivery,
modification, waiver and amendments of this Loan Agreement, the Note and the
related documentation, and also all reasonable expenses incurred by the Lender
(including reasonable attorneys' fees) in the collection of any Indebtedness
incurred hereunder in the event of default by Borrower.
B. Borrower agrees to pay any and all documentary, intangible
stamp or excise taxes now or after payable in respect of the Loan, this Loan
Agreement or Other Agreements or any modifications thereof and hold the Lender
harmless with respect thereto. The Borrower further agrees that the Lender may
deduct from any advance the amount of any such documentary or intangible stamp
tax payable with respect to such advance, the decision of the Lender as to the
amount thereof to be conclusive, absent manifest error. Borrower gives the
Lender the authority to debit its accounts maintained with the Lender for any
principal, interest, fees or other Liabilities becoming due hereunder.
C. This Loan Agreement sets forth the entire understanding and
agreement of the parties hereto in relation to the subject matter hereof and
supersedes any prior negotiations and agreements among the parties relative to
such subject matter. No promise, condition, representation or warranty, express
or implied, not herein set forth shall bind any party hereto, and none of them
has relied on any such promise, condition, representation or warranty. Each of
the parties hereto acknowledges that, except as in this Loan Agreement otherwise
expressly stated, no representations, warranties or commitments, express or
implied, have been made by any other party to the other. None of the terms or
conditions of this Loan Agreement may be changed, modified, waived or canceled
orally or otherwise, except by writing, signed by all the parties hereto,
specifying such change, modification, waiver or cancellation of such terms or
conditions, or of any preceding or succeeding breach thereof.
D. Notwithstanding any other provision herein, the aggregate
interest rate charged under the Note, including all charges or fees in
connection therewith deemed in the nature of interest under Florida law, shall
not exceed the maximum rate allowed by law. In the event the stated interest
rate on the Note together with any other charge or fee deemed in the nature of
interest exceeds the maximum legal rate, then the Lender shall have the right to
make such adjustments as are necessary to reduce the aggregate interest rate to
the maximum legal rate. The Borrower waives any right to prior notice of such
adjustment and further agrees that such adjustment may be made by the Lender
subsequent to notification from Borrower that the aggregate interest charged
exceeds the maximum legal rate.
E. This Loan Agreement, the Security Agreement and the Note
issued hereunder shall be governed in all respects by the laws of Florida.
F. Should any one or more of the provisions of this Loan
Agreement be determined to be illegal or unenforceable as to one or more of the
parties, all other provisions nevertheless shall remain effective and binding on
the parties hereto.
<PAGE>
G. Borrower and Lender hereby consent and agree that, in any
actions predicated upon this Agreement, venue is properly laid in Brevard
County, Florida, and that the Circuit Court for Brevard County, Florida shall
have full jurisdiction to determine all issues arising out of or in connection
with the execution and enforcement of this Agreement. Borrower waives to the
fullest extent permitted under the laws of the State of Florida, any right,
power or privilege to demand a jury trial with respect to any and all issues
arising out of or in connection with the execution and/or enforcement of this
Agreement.
H. Borrower warrants and represents to and covenants with
Lender that, on and after the date of the Note, so long as any of the
indebtedness provided for herein remains unpaid:
(1) Borrower, on behalf of Borrower and any material
subsidiaries of Borrower (hereinafter referred to as the "Organization"), has:
(a) undertaken a detailed inventory, review, and assessment of all areas within
and affecting the Organization's business and operations that could be
materially and adversely affected by the failure of the Organization to be Year
2000 Compliant (as hereinafter defined) on a timely basis; (b) developed a plan
and time line for becoming Year 2000 Compliant on a timely basis; and (c) to
date, implemented that plan in accordance with the specified timetable in all
material respects; and
(2) The Organization reasonably anticipates that the Organi-
zation will be Year 2000 Compliant on a timely basis.
(3) Borrower shall deliver to Lender: (a) immediately upon
becoming aware of the existence of any condition or event which constitutes or
will constitute, but for the passage of time or giving of notice or both, an
event of default, a written notice specifying the nature and period of existence
thereof and what action the Organization is taking or proposes to take with
respect thereto; and (b) at the request of Lender, such information,
documentation and materials as Lender may from time to time reasonably require
including, but not limited to, (i) the Organization's Year 2000 plan and time
line, (ii) any management or other letters from the Organization's accountants
addressing or mentioning the Organization's Year 2000 Compliance, and (iii) such
other information, documentation and materials as Lender may reasonably request
from time to time in order to confirm that the Organization is Year 2000
Compliant and the method(s) used by the Organization to become Year 2000
Compliant.
As used herein, "Year 2000 Compliant" shall mean that all
software, embedded microchips and other processing capabilities utilized by the
Organization or the Organization's key suppliers, vendors and customers will
correctly process, sequence, and calculate, without interruption, all date and
date related data for all dates to, through and after January 1, 2000, including
leap year calculations, and shall recognize, store and transmit date data in a
format which clearly indicates the correct century.
IN WITNESS WHEREOF, Borrower and Lender have hereunto caused
these presents to be executed on the date first above written.
Signed, sealed and delivered "BORROWER"
in the presence of:
SOFTWARE TECHNOLOGY, INC., a
Florida corporation
/s/ Jeffery B. Weinress By: /s/ Sally H. Ball
- ----------------------------- --------------------------------
Sally H. Ball, Treasurer
/s/ Kristi Zugh
- -----------------------------
Two witnesses as to Borrower
(CORPORATE SEAL)
<PAGE>
Signed, sealed and delivered "GUARANTORS"
in the presence of:
EXIGENT INTERNATIONAL, INC., a
Delaware corporation
/s/Phil Hayes By:/s/ Jeffery B. Weinress
- ----------------------------- --------------------------------
Jeffery B. Weinress,
/s/ Sally H. Ball Sr. Vice President andTreasurer
- -----------------------------
Two witnesses as to Exigent
International, Inc.
(CORPORATE SEAL)
FOTOTAG, INC., a
Delaware corporation
/s/ Phil Hayes By: /s/ Sally H. Ball
- ----------------------------- --------------------------------
Sally H. Ball, Treasurer
/s/ Jeffery B. Weinress
- -----------------------------
Two witnesses as to Fototag, Inc.
(CORPORATE SEAL)
"LENDER"
THE HUNTINGTON NATIONAL BANK
/s/ Sally H. Ball By: /s/ Phil Hayes
- ----------------------------- --------------------------------
Name: Phil Hayes
/s/ Jeffery B. Weinress Title: AVP
- -----------------------------
Two witnesses as to Lender
<PAGE>
EXHIBIT "A"
All of the Debtor's right, title and interest in and to each of the
following, however arising and whether now existing or hereafter acquired or
arising (the "Collateral"):
(A) "Accounts"of Borrower, which means and includes accounts, general
intangibles, chattel paper, instruments and documents, whether now owned or
hereafter acquired by Borrower. "General Intangibles" shall mean all intangible
personal property of Borrower of every kind and nature (other than accounts,
chattel paper, documents and instruments) including, without limitation, choses
in action, causes of action, corporate or other business records, inventions,
designs, patents, patent applications, trademarks, trade names, trade secrets,
good will, copyrights, registrations, licenses, franchises, deposit accounts,
contract rights, leasehold improvements, tax refund claims, computer programs,
and any guarantee claims, security interests or other security held by or
granted to Borrower to secure payment by an Account Debtor of any of the
Accounts. "Account Debtor" means any person who is or who may become obligated
to Borrower under or on account of an Account.
(B) "Inventory" of Borrower, which means and includes any and all
goods, merchandise and other personal property, including, without limitation,
goods in transit, wheresoever located and whether now owned or hereafter
acquired by Borrower which is or may at any time be held for sale or lease,
furnished under any contract or service or held as raw materials,
work-in-process, or supplies or materials used or consumed in a Borrower's
business, including, without limitation, all such property the sale or other
disposition of which has given rise to Accounts and which has been returned to
or repossessed or stopped in transit by Borrower.
(C) "Equipment" of Borrower, which means and includes all fixtures and
equipment, including without limitation, furniture, vehicles and trade fixtures;
(D) All monies, residues and property of any kind, now or at any time
or times hereafter, in the possession or under the control of the Bank or a
bailee of Bank;
(E) All accessions to, substitutions for and all replacements, products
and proceeds of the foregoing, including, without limitation, proceeds of
insurance policies insuring the Collateral; and
(F) All books and records (including without limitation, customer
lists, credit files, computer programs, print-outs, and other computer materials
and records) of Borrower pertaining to any of the foregoing.
All of the property and interests in property described in subsections
(A) through (F) and all other property and interests in personal property which
shall, from time to time, secure the Liabilities are herein collectively
referred to as the "Collateral".
<PAGE>
EXHIBIT 1
Definitions
"Borrowing Base" will consist of up to 80% of "eligible"
accounts receivable plus the lessor of either $750,000.00 or up to 50% of
"eligible" contract receivables plus the lesser of either $l,500,000.00 or up to
50% of "eligible" Costs in Excess of Billings minus the existing balance on the
$3,000,000.00 line of credit and the term debt which has a current balance of
approximately $408,000.00.
"Eligible" is defined as: (l) Accounts receivable: amounts
that are less than 90 days from invoice date; (2) Contracts receivable: amounts
that are fully recoverable according to contract terms within one year.
Contracts shall be submitted to Lender prior to funding request being made.
Eligibility shall be determined by Lender in its sole discretion; (3) Costs in
excess of billings: amounts that are to be billed as of the end of the current
month. No advance will be made on accounts whose balance that is over 90 days
from invoice date is over 25% of the total account balance.
"Collateral" means all of the accounts, inventory, equipment
and other personal property of the Borrower described in the Security Agreement.
"Current Assets" means cash and all other assets or resources
of the Borrower and the Guarantors that are expected to be realized in cash,
sold in the ordinary course of business, or consumed within one year, all
determined in accordance with Generally Accepted Accounting Principles,
including, but not limited to, inventory supported by outstanding import letters
of credit.
"Current Liabilities" means the amount of all liabilities of
the Borrower and the Guarantors that by their terms are payable within one year
(including all indebtedness payable on demand or maturing not more than one year
from the date of computation and the current portion of Indebtedness having a
maturity date in excess of one year), all determined in accordance with
Generally Accepted Accounting Principles, including, but not limited to,
outstanding letters of credit.
"Tangible Net Worth" means the depreciated book value of all
assets of Borrower and Guarantors less:
(i) intangible assets, such as (without limitation)
goodwill (whether representing the excess of cost over book value of
assets acquired or otherwise), capitalized expenses, patents,
trademarks, trade names, copyrights, franchises, licenses and deferred
charges, such as (without limitation) unamortized costs and costs of
research and development.
(ii) Total Liabilities,
(iii) treasury stock, and
(iv) advances to stockholders or affiliates of the
Borrower.
"Total Liabilities" means the aggregate amount of all
liabilities (i.e., claims of creditors of Borrower and Guarantors that are to be
satisfied by the disbursement or utilization of corporate resources), including,
but not limited to, all outstanding import letters of credit and negative
goodwill of Borrower and Guarantors.
"Current Ratio" means the ratio of Current Assets to Current
Liabilities.
"Default" means any event that, with the giving of notice,
lapse of time, or both, would become an Event of Default.
<PAGE>
"Fiscal Year" means the 12-month period of the Borrower ending
on December 3l of each Calendar year and commencing on January lst of each
calendar year.
"Generally Accepted Accounting Principles" means those
principles of accounting set forth in Opinions of the Financial Accounting
Standards Board or the American Institute of Certified Public Accountants or
which have other substantial authoritative support and are applicable in the
circumstances as of the date of a report, as such principles are from time to
time supplemented and amended.
"Indebtedness" means with respect to any Person, all
indebtedness of such Person for borrowed money, all indebtedness of such Person
for the acquisition of property other than purchases of products and merchandise
in the ordinary course of business, indebtedness secured by any lien, pledge or
other encumbrance on the property of such Person whether or not such
indebtedness is assumed, all liability of such Person by way of endorsements
(other than for collection or deposit in the ordinary course of business); all
guarantees of Indebtedness of any other Person by such Person (including any
agreement, contingent or otherwise, to purchase any obligation representing such
indebtedness or property constituting security therefor, or to advance or supply
funds for such purpose or to maintain working capital or other balance sheet or
income statement condition, or any other arrangement in substance effecting any
of the foregoing); all leases and other items which in accordance with Generally
Accepted Accounting Principles are classified as liabilities on a balance sheet;
provided that in no event shall the term Indebtedness include capital stock,
surplus and retained earnings, minority interest in the common stock of
Subsidiaries, reserves for deferred income taxes and investment credits, other
deferred credits and reserves, and deferred compensation obligations.
"Liabilities" mean all liabilities, obligations and
indebtedness of any and every kind and nature (including, without limitation,
interest, charges, expenses, attorneys' fees and other sums chargeable to
Borrower by the Lender and future advances made to or for the benefit of
Borrower), whether arising under this Loan Agreement, or arising under the Note
or arising under any of the Other Agreements or acquired by the Lender and from
any other source, whether heretofore, now or hereafter owing, arising, due or
payable from Borrower to the Lender and howsoever evidenced, created, incurred,
acquired or owing, whether primary, secondary, direct, contingent, fixed or
otherwise, including obligations of performance.
"Other Agreements" means the Note, the Guaranty Agreement, the
Security Agreement and all agreements, instruments and documents, including,
without limitation, note, guaranties, mortgages, deeds to secure debt, deeds of
trust, chattel mortgages, pledges, powers of attorney, consents, assignments,
contracts, notices, security agreements, financing statements, certificates of
title, trust account agreements and all other Written matters whether
heretofore, now or hereafter executed by or on behalf of Borrower and delivered
to the Bank, with respect to this Loan Agreement, or with respect to the
transactions contemplated by this Loan Agreement.
"Person" means an individual, partnership, corporation, trust,
unincorporated organization, association, joint venture or a government agency
or political subdivision thereof.
All accounting terms not specifically defined herein shall be
construed in accordance with Generally Accepted Accounting Principles.
All of the terms defined in this Loan Agreement shall have
such defined meanings when used in the Other Agreements.
